Banks Have Figured Out a Way to Capitalize on Madoff Victims’ Financial Distress

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You know who has a proven record of accepting short-term gains to the detriment of the long-term? People who buy into Ponzi schemes. Which is probably why some bright mind came up with the idea of selling off defrauded Madoff victims’ legal claims. Settlements in the case might be years away, and some of these folks have recently run into, uh, unexpected cash-flow issues. They’re taking quick money up front from buyers willing to wait it out in hopes of a bigger ultimate payday — it’s like a pawn shop for contracts and crushed dreams. And it’s a booming business: “‘There are some people who say that one of the best performing asset classes of 2010 was Madoff claims,’ said Richard Levin, head of the restructuring practice at Cravath, Swaine & Moore LLP,” according to The Wall StreetJournal.

The victims’ shares are looking like such a good investment, in fact, that banks want in! Including two that the Madoff trustee is suing, UBSAG and Royal Bank of Scotland. So if they lose their lawsuit, the logic goes, at least the banks will offset losses slightly by getting a payout from other Madoff claims they snapped up. After all, if the Madoff fraud taught them anything, it’s that you can’t plan carefully enough for your financialfuture.